Canada’s federal deficit is currently forecasted to be $343 billion in fiscal year 2020-21, or more than 15% of gross domestic product (GDP). Not surprisingly, this deficit and the associated accumulation of debt is attributable to the government’s response to the COVID-19 pandemic. Federal budget deficits are, however, expected to continue well beyond 2020. This commentary discusses how we should think about the federal government’s debt, and what perspective we should take that may be different from how we are used to thinking about other kinds of debt. Read this articleIs Canada’s Federal Debt a Cause for Concern?
The Canada Recovery Benefit (CRB) is a bold step in the delivery of pandemic-related aid to self-employed and gig workers, who are poorly served by Employment Insurance. Advocates of reform to Canada’s income transfer system will find much to like about the CRB, and some may wish to make the program, or something like it, a permanent feature of Canada’s social safety net. However, there are likely to be substantial enforcement and implementation issues with the program, as well as problems around fairness. As currently designed, the CRB is not a good template for a guaranteed basic income for Canada. Read this articleThe Canada Recovery Benefit: Employment Insurance or Basic Income Guarantee?
The Canada Recovery Benefit may become an important source of support for self-employed individuals during the COVID-19 pandemic, particularly among those without employees. One important obstacle to the policy’s success is that the self-employed are a heterogeneous group that is not easily characterized, with workflows that do not fit neatly into weekly benefit periods. Efforts to develop well-targeted post-pandemic support for the self-employed require better data to understand their workflows, incomes, and behavioural responses to adjustments in policy parameters. Read this articleThe Challenge of Designing Income Support Programs for the Self-Employed
Federal emergency wage subsidies are poorly targeted, resulting in a fiscal cost of $25,000 or more for each person-month of employment saved through the program so far. Recent reforms attempt to target subsidies better to reduce fiscal costs, but the new approach creates disincentives for business growth that put the economic recovery at risk. The program should be wound down at the end of the year, and future programs should be designed to direct payments to incremental jobs saved or created by the policy. Read this articleBoos for CEWS
In response to COVID-19, and the public health response to it, Canada’s federal and provincial governments have accumulated debt in amounts not seen since World War 2. General government debt (federal plus provincial) is expected to exceed 100% of GDP — according to the latest forecast from the IMF … Read this articleGovernment Debt Sustainability in Canada’s Post-COVID Future
The Federal government is in need of a new fiscal anchor. If there is one thing the current crisis has revealed on the fiscal policy front, it is that the debt-to-GDP ratio alone cannot adequately play that role. As a result, additional fiscal rules that allow potentially large deficits during recessions while ultimately balancing budgets over the cycle will be needed to keep the country’s finances on a sustainable path. Read this articleCanada Needs a New Fiscal Anchor. (Québec Has One to Offer.)
The federal debt is rising fast and is likely to reach at least 63 percent of GDP by 2025, a level not seen since the fiscal crisis of the 1990s. But the current low level of interest rates (if continued in the future) mean that the debt-to-GDP ratio is sustainable and will likely decline gradually over time, without the need for any sharp fiscal consolidation in the coming years. Read this articleFederal debt from 1867 … and after the pandemic
CERB is the most important, if temporary, new income support program in generations, but little is known yet about how and for whom it is working. Read this articleTracking the Canada Emergency Response Benefit
This post is the first of a regular series coming to Finances of the Nation which will serve to aggregate selected current research from think tanks, journals and other relevant sources relating to the Finances of the Nation project. This installation covers the federal government’s Economic and Fiscal Snapshot, Alberta’s economic recovery plan and recommendations on policy for the post-pandemic world. Read this articleFinances of the Nation Research Roundup Number 1 – July 13